Ryan Kunkel, a co-owner of five marijuana dispensaries, counts tens of thousands of dollars cash at his office in Seattle, Jan. 3, 2014. Legal marijuana businesses are being conducted almost entirely in cash because banks across the country have been reluctant to provide accounts and other services to them, fearing federal regulators. (Photo: David Ryder / The New York Times)

Washington - Marking another milestone for the legal marijuana industry, the Obama administration on Friday said it has advised U.S. attorneys in states where the sale of marijuana is legal not to prosecute banks that allow pot stores to open accounts and accept credit-card payments.

The policy will apply to Washington state and Colorado, where voters legalized the recreational use of marijuana in 2012, as well as the 20 states and the District of Columbia that allow marijuana to be sold for medical reasons. Current federal law prohibits banks from accepting money linked to marijuana transactions because the drug is banned under the federal Controlled Substances Act.

The move was hailed as a step forward by proponents of marijuana sales, but banking organizations warned that accepting the deposits was still illegal and said it was unlikely to widely change banks’ business practices.

“Legitimate marijuana businesses will no longer be forced to operate as cash-only businesses, a circumstance which has made them highly vulnerable to robbery and other criminal activities,” said Democratic Rep. Denny Heck of Washington state, who had lobbied hard for change in federal practices after his state legalized the recreational use of marijuana. Sales are expected to begin there this spring; they began in Colorado Jan. 1.

Frank Keating, chief executive officer of the American Bankers Association, was more cautious on the likely effect of the policy change. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions,” he said.

Richard Hunt, president of the Consumer Bankers Association, agreed, saying the only solution is for Congress to change the law.

“Until then, the nation’s 7,000 banks will be highly reluctant to participate in this new type of commerce,” he said.

No one’s expecting Congress to move on full legalization anytime soon, even though polls now show a majority of Americans back it. A bill to legalize marijuana has languished since it was introduced a year ago, not even receiving a hearing. And only 18 members of the House of Representatives signed a letter this week asking Obama to lift the Schedule 1 designation for marijuana, which puts it in the same category as heroin and LSD.

The change in Justice Department policy was expected after Attorney General Eric Holder said last month that the administration was working to prevent “huge amounts of cash in these places.”

“There’s a public safety component to this,” Holder said in a speech at the University of Virginia. “Huge amounts of cash – substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited – is something that would worry me, just from a law enforcement perspective.”

While accepting deposits from marijuana businesses remains a violation of money-laundering laws, prosecutors have wide discretion on what cases to pursue. And while the Justice Department cannot waive federal banking laws, its new policy advises prosecutors to pursue only businesses that use retail stores as part of larger criminal enterprises.

Essentially, the administration is promising to let banks and pot stores work together, so long as they abide by some basic rules: preventing the distribution of marijuana to minors, preventing violence and making sure no pot is allowed on federal property, among others.

In a memorandum issued to all U.S. attorneys on Friday, Deputy Attorney General James Cole said the new policy guidance applies “to the exercise of prosecutorial discretion” and warned that prosecutors still retain the right to enforce any federal laws relating to marijuana.

In a separate memo, the Treasury Department’s Financial Crimes Enforcement Network said the new guidance is an attempt to “enhance the availability of financial services” for marijuana-related businesses. But it said that banks should conduct due diligence, ensuring that any pot store they do business with is fully licensed and registered by the state and not a front for money laundering.

The new policy comes after the Justice Department said in August that it would not block Colorado and Washington state from selling and taxing pot, as long as they do a good job of policing themselves.

Heck, a freshman who has made the issue a pet cause, said federal regulators deserve credit “for their diligence and thoroughness” in developing the new policy.

“There is still, however, more to do,” Heck said. Even after the new policy is enforced, he said, “state and federal laws will remain in conflict with one another, and some financial institutions will continue to decline to provide banking services to legitimate marijuana businesses.”

Legalization opponents are counting on it.

When Holder made his announcement last month, Kevin Sabet, a former drug policy adviser for Obama who’s now the director of the anti-legalization group Project SAM (Smart Approaches to Marijuana), predicted that many banks will still be uneasy since federal law is not changing.

“There’s no assurance that a legal memo from DOJ is going to be enough for reputable banks to deal with a federally illegal substance,” Sabet said. “Banks would have legitimate concerns that the mom-and-pop store they think they are dealing with is actually a front for something much more serious, hidden under the shroud of legal marijuana.”

Tom Angell, chairman of the pro-legalization group Marijuana Majority, said the new policy is another indication that the Obama administration “is making a good-faith effort to accommodate new marijuana legalization laws that enjoy broad voter support.” But he said it could easily be reversed by a future administration.

“Until federal laws are actually changed, many state-legal marijuana businesses may still be forced to operate on a cash-only basis,” Angell said.

Rob Hotakainen writes for McClatchy’s Washington state newspapers. He joined the McClatchy Washington Bureau as a correspondent for the Minneapolis Star Tribune in 1999 and became the Minneapolis team leader in 2000, a position he held until 2007. A native of Minnesota, Rob worked as a reporter for the Star Tribune in Minneapolis for 12 years before moving to Washington. And he was a Washington correspondent for the Kansas City Star and the Sacramento Bee from 2007 to 2010, before moving to his current beat in January 2011. Hotakainen was named Washington’s top regional reporter in 2010 by the Washington Press Club Foundation, winning the David Lynch Regional Reporting Award.

Ryan Kunkel, a co-owner of five marijuana dispensaries, counts tens of thousands of dollars cash at his office in Seattle, Jan. 3, 2014. Legal marijuana businesses are being conducted almost entirely in cash because banks across the country have been reluctant to provide accounts and other services to them, fearing federal regulators. (Photo: David Ryder / The New York Times)

Washington - Marking another milestone for the legal marijuana industry, the Obama administration on Friday said it has advised U.S. attorneys in states where the sale of marijuana is legal not to prosecute banks that allow pot stores to open accounts and accept credit-card payments.

The policy will apply to Washington state and Colorado, where voters legalized the recreational use of marijuana in 2012, as well as the 20 states and the District of Columbia that allow marijuana to be sold for medical reasons. Current federal law prohibits banks from accepting money linked to marijuana transactions because the drug is banned under the federal Controlled Substances Act.

The move was hailed as a step forward by proponents of marijuana sales, but banking organizations warned that accepting the deposits was still illegal and said it was unlikely to widely change banks’ business practices.

“Legitimate marijuana businesses will no longer be forced to operate as cash-only businesses, a circumstance which has made them highly vulnerable to robbery and other criminal activities,” said Democratic Rep. Denny Heck of Washington state, who had lobbied hard for change in federal practices after his state legalized the recreational use of marijuana. Sales are expected to begin there this spring; they began in Colorado Jan. 1.

Frank Keating, chief executive officer of the American Bankers Association, was more cautious on the likely effect of the policy change. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions,” he said.

Richard Hunt, president of the Consumer Bankers Association, agreed, saying the only solution is for Congress to change the law.

“Until then, the nation’s 7,000 banks will be highly reluctant to participate in this new type of commerce,” he said.

No one’s expecting Congress to move on full legalization anytime soon, even though polls now show a majority of Americans back it. A bill to legalize marijuana has languished since it was introduced a year ago, not even receiving a hearing. And only 18 members of the House of Representatives signed a letter this week asking Obama to lift the Schedule 1 designation for marijuana, which puts it in the same category as heroin and LSD.

The change in Justice Department policy was expected after Attorney General Eric Holder said last month that the administration was working to prevent “huge amounts of cash in these places.”

“There’s a public safety component to this,” Holder said in a speech at the University of Virginia. “Huge amounts of cash – substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited – is something that would worry me, just from a law enforcement perspective.”

While accepting deposits from marijuana businesses remains a violation of money-laundering laws, prosecutors have wide discretion on what cases to pursue. And while the Justice Department cannot waive federal banking laws, its new policy advises prosecutors to pursue only businesses that use retail stores as part of larger criminal enterprises.

Essentially, the administration is promising to let banks and pot stores work together, so long as they abide by some basic rules: preventing the distribution of marijuana to minors, preventing violence and making sure no pot is allowed on federal property, among others.

In a memorandum issued to all U.S. attorneys on Friday, Deputy Attorney General James Cole said the new policy guidance applies “to the exercise of prosecutorial discretion” and warned that prosecutors still retain the right to enforce any federal laws relating to marijuana.

In a separate memo, the Treasury Department’s Financial Crimes Enforcement Network said the new guidance is an attempt to “enhance the availability of financial services” for marijuana-related businesses. But it said that banks should conduct due diligence, ensuring that any pot store they do business with is fully licensed and registered by the state and not a front for money laundering.

The new policy comes after the Justice Department said in August that it would not block Colorado and Washington state from selling and taxing pot, as long as they do a good job of policing themselves.

Heck, a freshman who has made the issue a pet cause, said federal regulators deserve credit “for their diligence and thoroughness” in developing the new policy.

“There is still, however, more to do,” Heck said. Even after the new policy is enforced, he said, “state and federal laws will remain in conflict with one another, and some financial institutions will continue to decline to provide banking services to legitimate marijuana businesses.”

Legalization opponents are counting on it.

When Holder made his announcement last month, Kevin Sabet, a former drug policy adviser for Obama who’s now the director of the anti-legalization group Project SAM (Smart Approaches to Marijuana), predicted that many banks will still be uneasy since federal law is not changing.

“There’s no assurance that a legal memo from DOJ is going to be enough for reputable banks to deal with a federally illegal substance,” Sabet said. “Banks would have legitimate concerns that the mom-and-pop store they think they are dealing with is actually a front for something much more serious, hidden under the shroud of legal marijuana.”

Tom Angell, chairman of the pro-legalization group Marijuana Majority, said the new policy is another indication that the Obama administration “is making a good-faith effort to accommodate new marijuana legalization laws that enjoy broad voter support.” But he said it could easily be reversed by a future administration.

“Until federal laws are actually changed, many state-legal marijuana businesses may still be forced to operate on a cash-only basis,” Angell said.

Rob Hotakainen writes for McClatchy’s Washington state newspapers. He joined the McClatchy Washington Bureau as a correspondent for the Minneapolis Star Tribune in 1999 and became the Minneapolis team leader in 2000, a position he held until 2007. A native of Minnesota, Rob worked as a reporter for the Star Tribune in Minneapolis for 12 years before moving to Washington. And he was a Washington correspondent for the Kansas City Star and the Sacramento Bee from 2007 to 2010, before moving to his current beat in January 2011. Hotakainen was named Washington’s top regional reporter in 2010 by the Washington Press Club Foundation, winning the David Lynch Regional Reporting Award.